Why Capitalism is so 1.0

In my general love for social media and the internet, and how they change everything, utterly, I’ve been thinking about markets.

“Markets work: they produce vast quantities of things rich people don’t need at huge environmental cost” isn’t what the Buttonwood columnist in The Economist wrote recently.

They wrote, of course, that ‘markets work’ and paraphrased Friedrich Hayek as saying that markets ‘represented the individual decisions of millions – the wisdom of crowds, if you like’. This made me think of all the hype about social media: the combined efforts of millions on Twitter, Facebook etc. Wikipedia as a remarkable product of 100m hours of ‘cognitive surplus‘. The websites that try to harness the ‘wisdom of crowds’ or are platforms for collaborative creation: e.g. Beta Cup, Jovoto, Hypios

I was taught that economics is about one problem: the allocation of resources, such as capital, land and labour. Who gets what resources, how the resources are used, what is produced, who contributes, how products are distributed; that sort of thing. And the capitalist model, best elucidated by Adam Smith, says that markets provide the best solution, by managing millions of personal decisions about what’s best for an individual. Through the cumulative effects of personal decisions, the market sends signals (mainly in the price of goods/services) about what should be produced and how, where things should be sent, who gets what, etc. The ‘invisible hand’ distributes the resources.

The problem is that this means that you only get a say in the what/who/where if you’ve got money with which to signal your desire. ‘Money votes.’ It’s not particularly revolutionary to suggest that this might not best way to organise things. The reason for listening to you shouldn’t be due to whether you have money or not. No money no voice. Capitalism and democracy aren’t logical partners: an old argument.

So I wonder what Hayek and Smith would have made of the internet.

It seems to me that the internet provides an alternative way of solving the economic problem. Technologies like social media allow management of vast quantities of information, previously unknowable or unmanagable. Rather than market-based information like prices and profits as signals, we can allocate resources based on much deeper, more personal, more real information. We can account for those without capital. Anyone with a digital voice can take part in a global conversation about the what/who/how/where of resources.

What this physically looks like, I’m not sure. But it might be something like NeighborGoods, and similar non-profits or social-goal driven companies, like Kiva, etc. They’re all pretty small-scale at the moment, and deal with things that are tiny in the grand scheme of things. But perhaps it starts with these.